End of year restructure? How to avoid a winter of discontent

For many employers, the end of the year can signal a time for restructure rather than celebration. Helena Wheeler looks at what organisations need to consider to ensure their decisions don’t lead them to an employment tribunal.

Having to organise redundancies and restructuring in the run-up to Christmas is an unenviable task for HR.

Many businesses simply defer the necessary until January. Others consider a range of alternative measures – such as restricting recruitment, offering sabbaticals and other unpaid leave, and withdrawing job offers – to get past the festive period without having to undergo drastic change.

The reality is that no time is good when making redundancies because whenever restructures take place, they lead to uncertainty and upheaval, often negatively affecting morale.

However, if approached carefully and with good legal advice – employment tribunal claims can be avoided, and the downsides of restructuring can be minimised.

The law allows significant freedom for businesses to make decisions and a tribunal will not query the business efficacy of a redundancy. It will of course, need to be satisfied that redundancy is the genuine reason for a dismissal. In addition, it is essential to follow a correct and fair procedure if unfair dismissal, and/or discrimination claims, are to be avoided.

Redundancy and/or restructure?

The terms “redundancy” and “restructure” are often used interchangeably but they have very different legal meanings. Many employers find it tricky to distinguish between the two but failing to recognise a redundancy situation can result in an employee not being paid a redundancy payment and give rise to a claim for unfair dismissal, or even a protective award in larger-scale cases.

Employers may try to soften the blow, particularly at Christmas, by referring to redundancies as “restructures” – however, this can lead to the potential risk of claims from affected employees because the correct procedures haven’t been followed.

What is a redundancy?

A redundancy is a situation where an employer reduces – or intends to reduce – the number of its employees doing work “of a particular kind”.

This can be obvious, such as a reduction in overall headcount of either the business as a whole or a particular business unit. Or, it can be less straightforward, for example, a reduction in the requirement of the business for employees to do work of a particular kind – but where additional work of another kind is available within the business, resulting in no overall reduction in headcount.

Tribunal test for redundancy

Safeway Stores Plc v Burrell sets out a three-stage test which a tribunal would follow to determine whether a redundancy has taken place:

  1.  Has the employee been dismissed?
  2. Was there a reduced need for employees to do a particular kind of work?
  3. Was the employee dismissed wholly or mainly because of that reduced need?

Where there is a reduced requirement of the business for employees to do work of a particular kind

Restructures can lead to the definition of redundancy being met – even where the overall headcount of the business is not reduced. Redundancies can occur in successful, healthy businesses with lots of available work – if that employer reorganises the business because there are more people employed than are required to do a particular kind of work.

A good example of this would be where modernisation or efficiencies lead to a change in the organisation of work or skills, meaning fewer employees are required to perform that particular task, but different tasks are still required.

Barot v London Borough of Brent demonstrated this. It involved a restructure involving a change in the type of work being done and a reduction in lower level tasks and an increase in higher level, more strategic work. But there was no reduction in the total number of people. The tribunal still held that it was a redundancy situation because there was a reduced requirement for employees at the claimant’s grade to carry out the particular kind of work she did.

When there is a restructure, but no redundancy

On the flip side, it is not automatic that restructures equal redundancies. If overall, the business still requires just as much work of the particular kind in question and as many employees to do it, then there is no redundancy situation, even if individual jobs disappear as a result.

To give a practical example, a floral delivery company employs one delivery driver, who has a UK driving licence but is not a florist, and one florist who cannot drive. Neither is capable of, or willing to, perform the other’s role.

Therefore, the company decides it would be more efficient to have two florists who can also deliver – to achieve a sensible, genuine business reason. There has been no reduction in the requirement for work of any particular kind because the company does the same amount of floristry and deliveries as before, it is just organised in a different way.

If the company follows a fair process to dismiss both employees and recruit two florists who can also perform the delivery functions, there has been no redundancy – even though their single-skilled jobs have gone. This could be deemed a potentially fair reason for the resulting dismissals with the employer relying upon “some other substantial reason” (SOSR).

Changing terms and conditions: redundancy or SOSR?

An employer’s proposal to change terms and conditions – as part of a restructure – can lead to a dispute about whether the changes “go to the heart of the job being done” and therefore indicate a redundancy as a reduced requirement for work of a particular kind.

Providing a fair procedure was followed, employers may argue that employees dismissed for refusing to accept changes were dismissed for SOSR and no redundancy payment is due. However, the dismissed employees can argue that the real reason for the dismissals was redundancy, that they are due a redundancy payment, and potentially also that their dismissals were unfair.

Obtaining good legal advice on the correct process to follow is recommended, but a tribunal will always make an assessment based on the facts.

In all cases, there may be an obligation to consult collectively, if 20 or more employees are affected by the proposals, otherwise employers risk claims for up to 90 days’ gross pay per employee – and also potential criminal consequences.

Once a potential redundancy has been identified, it is important to seek advice early, so that the correct procedure – and possibly also the correct notification procedures – can be followed, avoiding the risk of claims.

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Helena Wheeler

About Helena Wheeler

Helena Wheeler is a senior lawyer at ESP Law
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